Karl TwortSenior Project Manager| Fresh EggUnited Kingdom
Hey Luis,
I have seen this a number of times. Usually, because there is a commercial gain from "winning" a new client, at a loss, to start a new relationship and ongoing revenue.
In my experience, as PM I would immediately raise this as an issue on the project. Even if there is commercial agreement, it needs to be documented that the available funds are not sufficient to deliver the scope.
This will bring early discussion to the table on whether this is a deliberate "loss leader" or maybe a mistake in the quotation process.
With the latter, a decision would need to be taken by the business on whether the financials need addressing with the client before the project is up to full steam. YOu can then also assess if there is any headroom in other area's that could allow you to recoup any shortfall.
Either way, knowing that the budget does not fit the Project must be discussed from the outset.
Karl
...
1 reply by Luis Branco
Dec 09, 2019 8:53 AM
Luis Branco
...
Dear Karl
Thank you for participating in this reflection and for your opinion.
Interesting from your perspective: "Knowing that the budget does not fit the project should be discussed from the start"
What do you think is the most appropriate way to resolve the situation?
Some factors which will affect how you would proceed include:
1. The nature of the contract - e.g. fixed price vs. cost reimbursable
2. The relationship with the customer and their relative strategic importance to us as a seller
3. The company's long term vs. short term objectives (e.g. do we take a loss on our first project in a new market to get a great reference for follow on work?)
4. The magnitude of the variance and whether or not this would just reduce our gross margin OR put us "in the red"
Kiron
...
1 reply by Luis Branco
Dec 09, 2019 9:00 AM
Luis Branco
...
Dear Kiron
Thank you for participating in this reflection and for your opinion.
Very important these 4 points you mentioned
Put some very interesting scenarios to the project manager.
What do you think is the most appropriate way to solve the situation?
Dear Abolfazl
Thank you for participating in this reflection and for your opinion.
What factors are you considering?
What do you think is the most appropriate way to solve the situation?
Saving Changes...
Luis BrancoCEO| Business Insight, Consultores de Gestão, LdªCarcavelos, Lisboa, Portugal
Dec 09, 2019 6:34 AM
Replying to Karl Twort
...
Hey Luis,
I have seen this a number of times. Usually, because there is a commercial gain from "winning" a new client, at a loss, to start a new relationship and ongoing revenue.
In my experience, as PM I would immediately raise this as an issue on the project. Even if there is commercial agreement, it needs to be documented that the available funds are not sufficient to deliver the scope.
This will bring early discussion to the table on whether this is a deliberate "loss leader" or maybe a mistake in the quotation process.
With the latter, a decision would need to be taken by the business on whether the financials need addressing with the client before the project is up to full steam. YOu can then also assess if there is any headroom in other area's that could allow you to recoup any shortfall.
Either way, knowing that the budget does not fit the Project must be discussed from the outset.
Karl
Dear Karl
Thank you for participating in this reflection and for your opinion.
Interesting from your perspective: "Knowing that the budget does not fit the project should be discussed from the start"
What do you think is the most appropriate way to resolve the situation?
Just report?
...
1 reply by Karl Twort
Dec 09, 2019 9:07 AM
Karl Twort
...
Hey Luis,
The only appropriate way, in my opinion, is to document and communicate.
As long as there is clarity from the start that this is a "known" factor, we can manage this as any part of the project.
Whatever the reason, be it a commercial decision, a misquote or an ambigous scope, as soon as it is highlighted we need to discuss it and document any agreement.
In an example where a commercial team hand across a project that is undersold, with a caveat of "we just needed to get it over the line" or "its fine, this has director approval", a responsible PM should ensure that decisions are validated before proceeding and the decision is communicated to the stakeholders and any relevant parties with legitimate interest. Managing a budget can be hard enough at times - managing a short budget needs to have crystal clarity on the reasons it was approved.
Of course the "it depends" answer is always relevant - but in order to grow our knowledge and expertise, we should always share personal situations and scenario's for discussion.
Karl
Saving Changes...
Luis BrancoCEO| Business Insight, Consultores de Gestão, LdªCarcavelos, Lisboa, Portugal
Dec 09, 2019 8:14 AM
Replying to Kiron Bondale
...
Luis -
As usual "it depends".
Some factors which will affect how you would proceed include:
1. The nature of the contract - e.g. fixed price vs. cost reimbursable
2. The relationship with the customer and their relative strategic importance to us as a seller
3. The company's long term vs. short term objectives (e.g. do we take a loss on our first project in a new market to get a great reference for follow on work?)
4. The magnitude of the variance and whether or not this would just reduce our gross margin OR put us "in the red"
Kiron
Dear Kiron
Thank you for participating in this reflection and for your opinion.
Very important these 4 points you mentioned
Put some very interesting scenarios to the project manager.
What do you think is the most appropriate way to solve the situation?
...
1 reply by Kiron Bondale
Dec 09, 2019 10:16 AM
Kiron Bondale
...
Unfortunately, without having the full context of the situation (i.e. the details about the points I'd raised), any suggestion I provide may be the right answer or the worst thing to do.
For example, if this relates to a firm fixed price contract and there is little opportunity to push a change request through based on a customer-driven scope change then the most obvious choices would be to:
a) Eat the additional costs and hopefully learn some lessons for future projects
b) Decide whether the costs of early termination of the contract (e.g. legal, financial, reputational) are less than doing "a" and proceed accordingly.
Kiron
Saving Changes...
Luis BrancoCEO| Business Insight, Consultores de Gestão, LdªCarcavelos, Lisboa, Portugal
Dec 09, 2019 8:17 AM
Replying to Abolfazl Yousefi Darestani
...
It depends. I do agree with Kiron.
Dear Abolfazl
Thank you for participating in this reflection and for your opinion.
What factors are you considering?
What do you think is the most appropriate way to solve the situation? Saving Changes...
Karl TwortSenior Project Manager| Fresh EggUnited Kingdom
Dec 09, 2019 8:53 AM
Replying to Luis Branco
...
Dear Karl
Thank you for participating in this reflection and for your opinion.
Interesting from your perspective: "Knowing that the budget does not fit the project should be discussed from the start"
What do you think is the most appropriate way to resolve the situation?
Just report?
Hey Luis,
The only appropriate way, in my opinion, is to document and communicate.
As long as there is clarity from the start that this is a "known" factor, we can manage this as any part of the project.
Whatever the reason, be it a commercial decision, a misquote or an ambigous scope, as soon as it is highlighted we need to discuss it and document any agreement.
In an example where a commercial team hand across a project that is undersold, with a caveat of "we just needed to get it over the line" or "its fine, this has director approval", a responsible PM should ensure that decisions are validated before proceeding and the decision is communicated to the stakeholders and any relevant parties with legitimate interest. Managing a budget can be hard enough at times - managing a short budget needs to have crystal clarity on the reasons it was approved.
Of course the "it depends" answer is always relevant - but in order to grow our knowledge and expertise, we should always share personal situations and scenario's for discussion.
Karl
...
1 reply by Luis Branco
Dec 09, 2019 10:04 AM
Luis Branco
...
Dear Karl
Thank you for your opinion
"The only appropriate way is to document and communicate.
As long as there is clarity from the start that this is a "known" factor, we can manage this as any part of the project "
Of course, using these situations as lessons learned for everyone involved.
Saving Changes...
Luis BrancoCEO| Business Insight, Consultores de Gestão, LdªCarcavelos, Lisboa, Portugal
Dec 09, 2019 9:07 AM
Replying to Karl Twort
...
Hey Luis,
The only appropriate way, in my opinion, is to document and communicate.
As long as there is clarity from the start that this is a "known" factor, we can manage this as any part of the project.
Whatever the reason, be it a commercial decision, a misquote or an ambigous scope, as soon as it is highlighted we need to discuss it and document any agreement.
In an example where a commercial team hand across a project that is undersold, with a caveat of "we just needed to get it over the line" or "its fine, this has director approval", a responsible PM should ensure that decisions are validated before proceeding and the decision is communicated to the stakeholders and any relevant parties with legitimate interest. Managing a budget can be hard enough at times - managing a short budget needs to have crystal clarity on the reasons it was approved.
Of course the "it depends" answer is always relevant - but in order to grow our knowledge and expertise, we should always share personal situations and scenario's for discussion.
Karl
Dear Karl
Thank you for your opinion
"The only appropriate way is to document and communicate.
As long as there is clarity from the start that this is a "known" factor, we can manage this as any part of the project "
Of course, using these situations as lessons learned for everyone involved. Saving Changes...
Dear Kiron
Thank you for participating in this reflection and for your opinion.
Very important these 4 points you mentioned
Put some very interesting scenarios to the project manager.
What do you think is the most appropriate way to solve the situation?
Unfortunately, without having the full context of the situation (i.e. the details about the points I'd raised), any suggestion I provide may be the right answer or the worst thing to do.
For example, if this relates to a firm fixed price contract and there is little opportunity to push a change request through based on a customer-driven scope change then the most obvious choices would be to:
a) Eat the additional costs and hopefully learn some lessons for future projects
b) Decide whether the costs of early termination of the contract (e.g. legal, financial, reputational) are less than doing "a" and proceed accordingly.
Kiron
...
2 replies by Karl Twort and Luis Branco
Dec 09, 2019 10:29 AM
Karl Twort
...
I do agree Kiron,
If all decisions were Black or White, Heads or Tails, or whatever clear cut Yes or No you choose, then Project management would be easy :)
Dec 09, 2019 10:58 AM
Luis Branco
...
Dear Kiron
We agree that without having a complete context of the situation, it is difficult to judge which decision is most appropriate.
However, you considered one of the possible scenarios: a firm fixed price contract and considered two possible answers.
Thanks for sharing
Could you create an algorithm that would help us consider the best decision regarding the projected scenarios? :-)
Saving Changes...
Karl TwortSenior Project Manager| Fresh EggUnited Kingdom
Dec 09, 2019 10:16 AM
Replying to Kiron Bondale
...
Unfortunately, without having the full context of the situation (i.e. the details about the points I'd raised), any suggestion I provide may be the right answer or the worst thing to do.
For example, if this relates to a firm fixed price contract and there is little opportunity to push a change request through based on a customer-driven scope change then the most obvious choices would be to:
a) Eat the additional costs and hopefully learn some lessons for future projects
b) Decide whether the costs of early termination of the contract (e.g. legal, financial, reputational) are less than doing "a" and proceed accordingly.
Kiron
I do agree Kiron,
If all decisions were Black or White, Heads or Tails, or whatever clear cut Yes or No you choose, then Project management would be easy :) Saving Changes...
